Petroleum Licensing and Contracting

15. Success criteria

Several criteria have been identified as major contributors to a successful licensing process:

1. An environment where there is competition among investors. If this can be achieved, it can potentially result in the best outcome for the state. Competition among potential investors can also help offset some of the asymmetry regarding access to information that tends to disadvantage governments in licensing negotiations. For example, the fact that investors are often better informed than their government counterparts as to a state’s geological prospects. This is particularly true in the early stages of extractives sector development when data sharing requirements have yet to be established.

2. Institutional capacity. Properly preparing a licensing round, and evaluating potential investors and their contract proposals, requires sophisticated professional technical, legal, and commercial skills. These skills need to be acquired by host government authorities responsible for the contract award process. Pending their development, authorities are generally encouraged to seek help from independent external advisers.